Examining the power of a spend analysis in the hotel industry
by VIGNESH MANI
During a much-needed respite between meetings, calls, and planning sessions, Sophia – an always-hustling businesswoman – sat in a cozy café, sipping lattes with a friend. The pair’s conversation wandered, eventually landing on a thought-provoking question: “How often do we undergo health physicals?”
Her friend’s swift reply echoed wisdom: “Just like normal physicals, annual health physicals are crucial for our well-being.” This answer lingered, prompting parallels to the business world. Indeed, businesses are living organisms – complex, dynamic, and deserving of regular checkups. However, those organisms are often neglected, never receiving the routine checkups they need.
Enter the spend analysis, a financial X-ray that uncovers hidden cost-saving opportunities and supply chain inefficiencies. Just as a physician scrutinizes X-rays for anomalies, a well-executed spend analysis reveals financial irregularities. In the fast-paced hospitality and leisure industry, where profitability and guest satisfaction strike a delicate balance, consistent analysis becomes paramount.
JUGGLING MULTIPLE PRIORITIES
Hotel general managers and revenue managers wear many hats. From optimizing occupancy and room pricing to overseeing diverse departments like housekeeping and F&B, their focus is on efficiency and profitability.
Think of a spend analysis as a comprehensive financial checkup designed specifically for the hospitality industry. It analyzes data across departments, revealing hidden cost-saving opportunities throughout your entire operation. Here are some key areas:
- Procurement: Negotiate better deals on everything from linens to toiletries.
- Energy Consumption: Identify areas to reduce energy use in cooling, heating, and lighting.
- Food and Beverage: Analyze purchasing patterns and menu costing to optimize food waste and portion control.
A spend analysis can potentially reduce procurement cycle times by anywhere from 10% to 30%, leading to faster payments to suppliers and improved cash flow, according to a study by The International Association of Contract and Commercial Management.
MORE THAN AN AUDIT
Empowered by data-driven insights from a spend analysis, you can make informed decisions. Ask yourself:
- Do you have a clear picture of your spending?
- Can you identify supply chain risks?
- Do you track procurement metrics beyond cost?
- Can you analyze spending across departments?
- Are you making data-driven decisions?
A spend analysis is distinct from a financial audit, which ensures financial statement accuracy. Financial audits focus on verifying the accuracy of your financial statements for external stakeholders like investors or regulators. A spend analysis, on the other hand, is an internal tool used to analyze your spending habits across departments. In other words, it’s an internal tool that examines spending patterns to identify cost savings and improve operational efficiency.
A spend analysis transforms raw data into clear visuals like charts and graphs showcasing:
- Departmental spending breakdowns (housekeeping vs. telecom)
- Supplier performance comparisons
- Spending trends across multiple locations (via heat-map)
A HOLISTIC APPROACH
A regular spending analysis acts as a competitive health check for hotels. It uncovers high-value guest segments and streamlines operations across all departments. This holistic approach unlocks hidden cost savings, boosts efficiency, and gives your hotel a vital edge in the market.
Staying ahead doesn’t just mean optimizing your internal operations. A spend analysis allows you to benchmark your spending against industry standards and competitor data. This can reveal areas where you might be overspending compared to similar hotels. By understanding these benchmarks, you can identify opportunities for further cost savings and ensure you’re operating at peak efficiency relative to the market.
A spend analysis can be a key component of long-term success. Consider a frequent analysis schedule (quarterly or biannually) depending on your hotel size and complexity. Let a spend analysis be your guide to smarter spending in the ever-evolving hospitality landscape.
Vignesh Mani, Consulting Partner at ERA Group (formerly known as Expense Reduction Analysts), specializes in optimizing expenses for businesses worldwide. As an AAHOA Allied Member, ERA Group brings tailored expertise to the hospitality and leisure industry. Based in Atlanta, GA, he continues to drive innovation in technology and cost management solutions. He has an MBA from the University of Chicago, Booth School of Business and can be contacted at [email protected].
